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Excluding liability for misrepresentation on sale of residential property

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06/03/2014

A misrepresentation is a statement which induces entry into a contract and which turns out to be false. English law recognises three different types of misrepresentation: fraudulent, negligent and innocent. It is possible to exclude or restrict liability for misrepresentation (though not fraudulent misrepresentation) although such a clause will be subject to the Unfair Contract Terms Act 1977 (UCTA). Section 11 of UCTA subjects any such clause to a test of “reasonableness”. It is for the party seeking to rely on the clause to show that it is reasonable.

A body of case law has built up around what is reasonable. Schedule 2 to UCTA provides a list of relevant considerations, including the respective bargaining positions of the parties, whether any inducement was given to the purchaser to agree to the term and whether the purchaser knew or ought reasonably to have known of the existence and extent of the term.

In the context of sales of residential property, a very relevant factor in determining the reasonableness of a clause excluding liability for misrepresentation will be whether the clause appears in standard terms or whether it was separately negotiated.

In the Court of Appeal decision of Cleaver v Schyde Investments Ltd [1], a seller of a property for residential development failed to disclose that a notice of a planning application had been made. This would have materially affected the purchaser’s prospects of obtaining a different planning consent. At court the seller relied upon a standard condition which excluded the remedy of rescission – available for misrepresentation and which puts the parties back into the position they were before the contract was made. The court said that while the clause was not inherently unfair, the seller could not rely upon it in circumstances where the seller had known of the planning consent but did not disclose it.

This decision contrasts with another Court of Appeal decision, Lloyd v Browning [2], also concerned with a planning consent. In this case, the purchaser came away from the transaction with the erroneous impression that the property had the benefit of planning consent. The seller sought to rely upon a provision in the contract which stated that the purchaser’s decision to buy was not induced by any statement made by the seller except those contained in the written response to the enquiries of the purchaser’s solicitor.

On this occasion the court ruled that the seller could rely on the exclusion clause. It had been expressly negotiated by parties of equal bargaining position and, rather than being standard wording, had been typed in separately.

These two cases alone are not enough to offer a definitive statement of the law. But they do suggest that if you want to be able to rely on an exclusion clause for misrepresentation, you should draw it to the purchaser’s attention expressly and, if possible, rely on a bespoke clause, rather than one contained in standard or special conditions.

[1] [2011] EWCA Civ 929
[2] [2013] EWCA Civ 1637

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